Pipelines Filled With Oil Amid Changing Economics and Rail Rules

March 5 (Bloomberg) -- Shipments of crude from the Bakken
are shifting back to pipelines from trains as more regulations
and narrower price spreads make rail less desirable.

Rail loadings in North Dakota last week fell by an average
of 103,000 barrels a day to 471,000, the lowest level since
September, according to Genscape Inc. Loadings declined the day
after the U.S. Transportation Department issued new rules on
Feb. 25 requiring producers to test the chemical composition of
all crude intended for shipment by rail.

“We’re seeing a shift back to pipe,” Steve Wuori,
strategic adviser to Enbridge Inc. Chief Executive Officer Al
Monaco, said yesterday in an interview at IHS CERAWeek in
Houston. “That’s been coincidental with more production coming
on, but it’s also been coincidental with some of the concerns
about rail” and changing economics.

Enbridge’s North Dakota pipeline system is operating at
full capacity after volumes bottomed out in April, Wuori said.

The Transportation Department’s order followed a series of
derailments and explosions involving trains carrying crude from
North Dakota and Montana. The rules also required that heavier
crudes previously categorized as less flammable “Group III”
products be labeled as riskier “Group I” or “Group II,”
which require higher standards for tank cars.

Pipeline Authority

Enbridge is the largest transporter of Canadian crude to
the U.S. with a mainline system that can transport 2.5 million
barrels a day of oil to the U.S. Midwest from Alberta. The North
Dakota System, which runs from Montana through North Dakota to
Clearbrook, Minnesota, can handle 475,000 barrels a day,
according to the company’s website.

The Calgary, Alberta-based company has also entered the
crude-by-rail business, operating an 80,000-barrel-a-day loading
station in Berthold, North Dakota. It is about to open an
80,000-barrel-a-day unloading terminal in Eddystone,
Pennsylvania, where it will have access to the Delaware River.

Rail shipments out of North Dakota peaked in April, when 75
percent of the state’s oil was shipped by train, according to
the state Pipeline Authority. As the discount between U.S. and
global crude prices narrowed from more than $20 a barrel in
March to 20 cents in June, rail shipments fell, bottoming out at
61 percent in July.

Shipments climbed back to 73 percent in December, the most
recent month for which data is available, as the U.S. crude
discount averaged $12.82 a barrel that month. The discount was
$5.97 yesterday based on settlement prices.

Pipelines are far better than rail for moving oil long
distances, Russ Girling, chief executive officer of TransCanada
Corp., said yesterday in an interview at CERAWeek.

“Even if we started moving 2 million barrels a day by rail
car, if you approved these pipelines that would shift to moving
it by pipeline,” Girling said. “It’s half the price or less,
has no GHG emissions, it’s buried 5 feet below the ground.”